Families and businesses in the U.S. are looking for green energy solutions to cut down their carbon footprint. Solar energy has quickly risen up to fill that void. However, one of the major challenges associated with solar energy is the cost of installation. Just a decade back, homeowners who wanted to go solar had to deal with costly and less efficient solar panels. Things changed in 2006 when the federal government introduced solar investment tax credit (ITC).
ITC encouraged people to make a smooth transition to solar without worrying about the installation cost. Coupled with falling solar equipment prices in recent years and various state-level tax credits, solar is now one of the safest investment opportunities for homeowners.
What the Solar Investment Tax Credit (ITC) means in 2021 and beyond
The ITC gave tax incentives to people who adopted solar energy. As a result, the solar adoption rate in the U.S skyrocketed in the last decade. Over the years ITC underwent multiple changes, mostly to tweak tax terms and extend the deadline.
The Solar Investment Tax Credit has been updated once again which means home and business owners who are planning to install solar this year or in the future, need to know how ITC will impact their installation charges.
The new ITC policy looks like this –
- 2020-2022: Residential and commercial owners will get a tax credit of 26% on the installation cost
- 2023: Residential and commercial owners will get a tax credit of 22% on the installation cost
- 2024: Commercial owners will get a tax credit of 10% on the installation cost. 2024 onwards, residential owners will not be eligible for ITC.
The new changes have essentially extended the deadline to another year. Solar ITC is a dollar-for-dollar reduction in the income tax of the homeowner or the business. To receive a 26% credit, commercial projects must commence by 2022 and put into service by December 31, 2025. Similarly, to receive a 22% credit, commercial projects must commence by 2023 and put into service by December 31, 2025. The 10% credit will come into effect on projects that start from 2024 and are put into service after 2025.
Multiple tax incentives can be confusing to most people. We’ll answer the most asked questions for you.
My yearly tax liability is lesser than the federal credit. Will I lose out on the benefits?
No. Even if your tax liability for the year is less than the ITC you’re expected to receive, you’ll be able to roll over the extra credit to the next year. This process is valid until the program ends.
I have leased my system from a solar installer. Will I be eligible to receive solar tax credits?
Unfortunately, if you have leased the system from a third-party installer or have signed PPA, you will not be eligible for ITC.
My state offers solar tax incentives. Will I be eligible to receive federal credits?
Various states like California, New York, Arizona, and Texas offer additional tax incentives and local rebates. This however does not impact your eligibility for ITC. You can take advantage of multiple solar incentives.
Considering how federal tax credit for homeowners drops permanently after 2023, this is the perfect time to go solar.